Consequential amendment to working out adjusted taxable income
Entities make provision for their expected income tax liability through the PAYG instalment system. Since a corporate tax entity can now choose to deduct a prior year loss that is less than the pool of carried forward losses, it was necessary to make some consequential amendments to the PAYG instalment system.
Broadly, an entity's PAYG instalment rate is based on an entity's notional tax which is its tax for the most recent year that has been assessed (called the base year) and based on an adjusted taxable income amount.
The adjusted taxable income of an entity is generally worked out by subtracting from its assessable income for its base year;
- any net capital gain included in assessable income
- all deductions other than tax losses, and
- any tax losses carried forward to the next income year.
In order to accurately reflect the likely tax consequences, where the amount of tax losses that were deducted in the base year, does not necessarily reflect the amount of tax losses that could have been deducted, then the calculation subtracts the lessor of:
- any tax loss deducted in the base year, and
- the amount of any tax loss that is carried forward to the next year.
Refer to subsections 45-330(2A) and (3) in Schedule 1 of the TAA 1953.